Questions and Answers

How does the new legislation allowing a one-time transfer from an existing IRA affect an HSA? Are HSA owners still limited to the maximum contribution amount? Can a husband and wife each transfer money from their IRA to an HSA if they have family high-deductible health plan coverage?

This one-time (once in a lifetime) provision allows an individual to use his/her IRA to make a regular contribution, including a catch-up contribution, to his/her own HSA.

The IRA distribution is tax free provided the HSA owner remains HSA eligible for 12 months following the month of the transaction. Despite being called a transfer, IRA custodians/trustees report the IRA distribution according to the IRA owner’s age. An IRA owner addresses the tax-free nature of the transaction on his/her income tax return.

The HSA owner cannot take an income tax deduction for this HSA contribution. It is limited to the individual’s HSA contribution limit for the year.

Such transactions may only occur between an IRA and an HSA owned by the same individual. Remember, even if an individual carries family coverage and his/her spouse’s health insurance is provided under that plan, both spouses may be eligible to establish an HSA, subject to the other eligibility criteria.

(Posted: 12/12/2007)